Dollar and yen surge in US session as risk averse investors rush out of stocks today on deep worry that debt problems in the Eurozone will hit the global economy. Investors are clearly dissatisfied with the lack of action from ECB and Trichet's comment that there was no discussing on bond purchase was a big disappointment. Moody's then came out with warning of contagion effect to Portugal, Spain, Italy, Ireland, and UK. Fed officials also expressed their concern that financial turbulent in Europe could have repercussions for US. Saint Louis Fed Bullard said One risk to the outlook ... is the fallout from potential sovereign debt default as conditions continue to deteriorate in Greece and other countries. Richmond Fed Lacker said problem in Greece has the potential to develop into something that has noticeable effects.
DOW dropped nearly 1000 pts to an intraday low of 9869.62, biggest intraday loss since market crash of 1987, before closing down -3.20% at 10520. S&P 500 also dived to as low as 1065.79 before closing down -2.68% at -1134.77. Crude oil hit an intraday low of 74.58 and lacks momentum for a recovery. Gold shoot above 1200 level on risk aversion. VIX, the fear index, once jumped above 40 level.
There are also a lot of important technical levels broken in the forex markets. To name a few:
* USD/JPY was down to as low as 88.25, just inch above key structure support level of 88.13. * EUR/JPY broke 2009 low of 112.10 to confirm resumption of the long term down trend. * EUR/CHF dropped through 1.4143 near term support and just take a breathe above 1.4 psychological level. * GBP/USD broke 2010 low of 1.4783 to confirm down trend resumption towards 2009 low of 1.3503. * GBP/JPY broke through recent low of 132.13 and confirm down trend resumption to 2009 low of 118.81 * USD/CAD and AUD/USD are also set to take on key level of 1.0779 and 0.8577 soon.
Let's look at some charts.
Dollar index's rise from 74.19 accelerates today after staying firm above upper channel resistance. The powerful impulsive move is in line with our view that rise from 74.19 is resuming the long term up trend from 70.70. We'd expect a test on 89.62 high sooner or later in Q2 or Q3, depending how fast stock market selling intensifies.
S&P 500 does reverse ahead of mentioned key resistance level at 1220/30 and the sharp fall today indicates that a medium term top is at least formed at 1219.80. Some support was seen at 55 weeks EMA and brought the strong recovery. But we'd expect this EMA to give way eventually have S&P 500 heads down to 61.8% retracement level at 878 at least.
The sharp fall in crude oil also argues that 87.15 made earlier this week was already the medium term top and focus will turn to 69.50 structural support in near term. Break there will turn oil bearish for 60 and below.